Okay, we’ll admit, most kids don’t talk about growing up to be a trader or analyst either, but forex scalping doesn’t even have as much caché as investing, and that’s saying something. It’s a common practice in the world of forex trading, and that’s about all you need to know about it. It’s common, not especially effective, or even reliable.
Scalping is intentionally aiming to produce very little profit, but making it up through volume of trades. Just typing that out, it’s hard not to think of the claim repeated by consultants and CMOs in boardrooms across the country: “…but we’ll make it up in volume!” Or, more specifically, of MoviePass, the equally in-demand and ill-fated brainchild of Helios & Matheson.
MoviePass was, for anyone with even a passing interest in movies, a deal too good to pass up: one free movie a day for just $10 a month. With the option to get 31 tickets for the price of one, MoviePass was a hit and soon had more than 3 million subscribers. But just like forex scalping, this was a dangerous, last-ditch move. Powered by a heap of venture capital, Helios & Matheson gave away millions of movies for free, all in the hope that they would generate enough leverage to demand a cut of concessions from theater chains like AMC.
Forex scalping isn’t so different. Scalpers, levered up with enough money to make anything look like an opportunity, attempt to scrape a bit of profit from the insignificant market moves throughout the day,
Forex requires relatively little starting capital when compared to almost any form of investing. It’s a massive ocean of transactions – as much as $6 trillion in trades a day – that any uninitiated trader can wade into on a whim. Forex brokerages are happy to oblige these small fish in over their head, offering anywhere from 50x to 200x leverage – and absolutely baffling amount in any other context. Literally one wrong trade could mean a margin call or even going into debt.
That’s when scalping becomes less of a strategy and more of a last great hope. It’s often the only option left for traders facing substantial losses and strict margin requirements that prevent them from holding positions for more than a few minutes at a time. Add to that the second-by-second stress of reacting to near-stochastic price movements that run nearly 24 hours a day, and scalping doesn’t look nearly as viable as a source of income. We all grow up to be something – hopefully forex scalpers grow up to be something else.
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